The value added tax (VAT) declaration has changed slightly over the past 25 years. Questions are now being raised as to whether the current method of VAT reporting is outdated or at least in need of a revision or “facelift”.
The VAT return and related reporting – more specifically the periodic intra-community summary information and the annual sales inventory – are the source of information for the VAT administration. This information is used to verify the correctness of the VAT paid and thus to limit the loss of VAT receipts for the government.
The VAT administration uses this information to carry out targeted checks. However, most VAT audits are the result of “data mining” of VAT returns and related reports. It is a technological process that requires little human intervention and enables faster anomaly detection including fraud. While more targeted checks are performed and anomalies are detected faster, data mining starts with ‘historical transactions’.
A VAT return is nothing more than a consolidated list of transactions that took place in the “recent” past. A European Commission study estimates the VAT loss (also known as the VAT Gap) in Belgium in 2018 to be 10.4% of expected VAT receipts.
The loss of VAT revenues and the vulnerability of the VAT system to fraud cannot be solved just by thoroughly refreshing the VAT return (for example by adding more reporting grids). Even then, the VAT administration will to some extent lag behind the facts and the data mining system will remain limited to the detection of historical anomalies.
The real-time reporting system means that the relevant documentation is made available to the VAT authorities in real time.
For example, in Spain, certain categories of taxpayers are already required to report their transactions “in real time” (the so-called SAF-T reports, based on OECD principles). In return, these taxpayers receive certain benefits, such as additional deferrals in submitting periodic VAT returns and the non-application of certain VAT reporting obligations. As a result, the Spanish tax administration is able to react faster in detecting and responding to certain anomalies, including fraud. This type of “real-time” system usually deals with invoice details, but can also apply to other tax-related documents. In the long term, this may also make the current VAT refund system redundant.
The introduction, over time, of a real-time system in Belgium should be seen in the light of global trends in this field. This would require far-reaching digitization by both the VAT payer and the VAT administration, although the Belgian tax authorities already have some experience in this area thanks to the tax-on-web platform, which is already used by millions of taxpayers for filing individual tax returns (from natural persons). In any case, tax professionals do not expect Belgium to implement a real-time VAT reporting system in the near future.
A real-time reporting system can bring taxpayers significant benefits if properly implemented.